HHS Proposes to Revise Discount Safe Harbor Protections for Drug Rebates

By and on February 7, 2019

On January 31, 2019, the Department of Health and Human Services (HHS) released a notice of proposed rulemaking (the Proposed Rule) as part of ongoing administration drug pricing reform efforts. The Proposed Rule would modify a regulatory provision that had previously protected certain pharmaceutical manufacturer rebates from criminal prosecution and financial penalties under the federal Anti-Kickback Statute.

Specifically, the Proposed Rule would exclude from “safe harbor” protection rebates and other discounts on prescription pharmaceutical products offered by pharmaceutical manufacturers to Medicare Part D plan sponsors or Medicaid Managed Care Organizations (MCOs), unless the price reduction is required by law (such as rebates required under the Medicaid Drug Rebate Program). The proposed exclusion would apply to rebates offered directly to Part D plan sponsors and Medicaid MCOs, as well as those negotiated by or paid through a pharmacy benefit manager (PBM). HHS stated that it does not intend for the revisions in this Proposed Rule to negatively impact protection of prescription pharmaceutical product discounts offered to other entities such as wholesalers, hospitals, physicians, pharmacies and third party payors in other federal health care programs. The proposed effective date of this regulatory modification is January 1, 2020, although HHS has sought comments regarding whether this allows sufficient time for parties to restructure existing arrangements.

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James A. Cannatti IIIJames A. Cannatti III
James A. Cannatti III* practices at the intersection of today's most pertinent health care issues, including digital health, health IT policy, and fraud and abuse, including Anti-Kickback Statute/Stark Law matters. With more than 10 years of experience in the US Department of Health & Human Services’ (HHS) Office of Inspector General (OIG), most recently as Senior Counselor for Health Information Technology, James is well-attuned to the regulatory issues impacting the rapidly evolving digital health landscape. Read James A. Cannatti III's full bio.  *Not admitted to practice in the District of Columbia; admitted only in Ohio. Supervised by principals of the Firm who are members of the District of Columbia Bar.


Kate McDonaldKate McDonald
Kate McDonald focuses her practice on transactional and regulatory counseling for clients in the health care industry, with particular focus on federal and state health care government programs and the intersection between health care payors and providers. Kate regularly advises health insurers, health maintenance organizations (HMOs), health care government contractors, health care providers and other clients on compliance with health care laws and regulations, particularly in connection with Medicare Advantage, Medicare Part D, Medicaid managed care, the Affordable Care Act, state insurance laws, and state licensure and professional practice regulations. Read Kate McDonald's full bio.

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